The Congressional Budget Office has released its annual long term budget outlook. Its contents are likely to impact budget discussions taking place in Washington, including negotiations on the $14.3 trillion debt limit.
The CBO offers a dire warning on the status of the U.S.’s fiscal scenario. The non-partisan budget office says spending on mandatory health programs, including Medicare and Medicaid, as well as a decrease in tax revenue, will account for major budget challenges.
Noting the cost of Social Security as relatively stable, the CBO wrote, “The aging of the population and the rising cost of health care could cause spending… to grow from roughly 10 percent of [gross domestic product] GDP today to about 15 percent of GDP 25 years from now.” That would leave little for any other spending. The CBO notes that an historical average of all government spending, including on interest payments, defense and discretionary programs, hovers at about 18 percent.
The CBO estimates in one scenario that rising mandatory spending costs combined with current tax policy – including a permanent extension of the Bush-era tax cuts -- of revenue sitting at 18 percent of GDP, debt will reach 190 percent of GDP by the year 2035. (Debt is currently less than 70% GDP.)
The CBO wrote that that “scenario underscores the need for large and rapid policy changes to put the nation on a sustainable fiscal course.”
Each June, the CBO issues this report looking at how the economy might react to different scenarios for federal spending and revenues.
CBO Director Doug Elmendorf will testify on this report Thursday at 10 a.m. before the House Budget Committee.